Hydropower developers say low river flow and extreme weather has taken a heavy toll and demand the government shoulders more of the financial risks

Developers argue the government should compensate them for lost revenues due to the impacts of climate change

Krishna Prasad Bhandari – a developer of the Jiri Khola hydropower project in eastern Nepal – has terrible memories of cyclone Hudhud that barrelled through central India and hit the Himalayan region last October.

The storm caused a landslide which destroyed the dam’s pipes, halting services for several months, a pattern of increasingly extreme weather, the developer says.

“Just a month after the withdrawal of monsoon, who could expect such intense rainfall… we believe it was due to climate change,” said Bhandari.

After the event he asked officials from the Nepal Electricity Authority (NEA), the Department of Hydrology and Meteorology and the Ministry of Environment to verify whether the event was caused by climate change, but no one could confirm this.

Scientists typically don’t attribute any one event to climate change, but they do caution that the warming of the earth’s climate will mean that once-rare weather events – such as droughts, floods and highly-destructive storms – could become much more common.

Developers demand compensation

“Insurers don’t provide full compensation, so for developers like us this has become a problem,” said Bhandari. “In addition we are charged a penalty if we are unable to deliver energy as agreed to the NEA,” he added.

Jiri Khola is not the only hydropower project to be affected by climate change, developers say. In 2009 the Jhimurk river in western Nepal, fell to a record low due to prolonged drought. As a result, the 12 MW Jhimruk hydropower project couldn’t provide the energy it was contracted to supply to the grid.

“It wasn’t our fault as river flow fell below minimum level but we had to pay a penalty to the Nepal Electricity Authority,” said Pratik Man Pradhan, vice president of business development at the Butwal Power Company Limited.

Hydropower developers say climate change is already affecting power generation and the future is even more unpredictable. And because authorities are not investigating whether climate change is likely to be responsible for severe droughts, it is the developers who are paying the price.

But meteorologists question such strong assertions. “Claims made by hydropower developers may be valid but we can’t easily verify or declare something is related to climate change. Long term meteorological datasets have to be analysed before reaching such conclusions,” said Rajendra Shrestha, retired senior meteorologist from the Department of Hydrology and Meteorology.

Climate change hits hydro sector hard

A recent research report by the Climate and Development Knowledge on the economic impact of climate change in Nepal identified hydropower as one of the most vulnerable sectors: “Future effects of climate change on the hydro electricity sector are potentially large but uncertain.”

The report estimates an additional US$5 billion worth of new hydro capacity will be needed to meet demand by 2050 as well as additional thermal plants to provide power in times of drought. The additional stress of climate change on hydro-electricity production is already costing the equivalent of 0.1% of GDP per year on average, and 0.3% in very dry years, the study claims.

But for small developers like Bhandari such vague reports have increased confusion rather than providing clarity.

Over the last two years, Nepal has seen a hydropower boom. Last year the country approved two large projects — the 900 MW Upper Karnali and 900 MW Arun III project –to be built by Indian companies. More recently the government gave the green light to a Chinese construction company to build the 750 MW West Seti project. Hundreds of small hydro projects have also been approved, with some already under construction. Nepal’s hydropower potential is estimated to be about 80,000MW, of which only 700MW has been exploited, and the country suffers from long power cuts.

Hydroelectric power is expected to be a key driver for Nepal’s economic growth, one of the poorest countries in the world. The government aims to produce 25,000 MW of electricity by 2025 (including for export) but progress has been stymied by protracted political turmoil and Nepal’s deep mistrust of its two larger neighbours.

However, experts now fear that Nepal’s billion dollar hydropower industry will be left highly vulnerable if climate change is not taken into consideration.

Government inaction

But investors are not yet willing to put money into investigating the impact of climate change on hydropower infrastructure. Generally private developers are given a licence to operate for 30-35 years before they hand over projects to the government. Developers argue the government should take a fair share of the financial risks if additional investment is required to compensate for the impacts of climate change.

“If long term planning is to be considered then both the government and the private sector should share risks and the government should provide financial incentives to the private sector,” said Khadga Bahadur Bisht, president of the Independent Power Producers Association (IPPAN).

Climate change is not a priority for the government either, who has more pressing problems to deal with. “Local protests [against dams] have become a headache – at this point climate change can’t be a central focus,” said Rajendra Kishore Kshetri, secretary at the Ministry of Energy.

Local communities are increasingly demanding more of the benefits from hydropower projects, including infrastructure like roads, schools and hospitals in affected areas. Recently workers brought the Upper Tamakoshi hydropower project in central Nepal to a halt, demanding more shares in the project (the developer had allocated 10% of shares to people of the local Dolakha district).